When a group of four large hospital systems that own ~5% of US hospitals decides to challenge rising generic drug prices, and Warren Buffett calls the healthcare system a “hungry tapeworm” every medical device manufacturer should take notice and evaluate their medtech pricing strategy.

This has been coming for a long time.

Four IDNs announced they are going to start their own non-profit drug company to compete with big pharma. And, the VA is taking notice by joining the hospitals as a consultant, along with other heavy-hitters including former Obama administration Medicare chief Don Berwick and Nebraska’s former Democratic senator and pharmacist Bob Kerrey.

Last week, Amazon.com, Berkshire Hathaway and and JP Morgan Chase, three powerful players in technology, insurance and finance with 1 million+ employees and a joint market cap of greater than $1.5 trillion, disclosed a non profit healthcare venture directed at cutting out-of-control costs for their employees.

Things will change that will affect medtech pricing strategies.

These hospital IDNs are run by smart people – their business plan is to seek or buy FDA approvals from other companies. They plan to work with contract manufacturers to manufacture drugs with a single goal to reduce price and ensure availability. No doubt the Amazon, JP Morgan, Berkshire Hathaway trinity have similar, well-thought out strategies.

Key quotes:

“This is a shot across the bow of the bad guys,” Dr. Marc Harrison[i], the CEO of Intermountain Healthcare, the Utah-based nonprofit hospital chain that is leading the initiative. “We are not going to lay down. We are going to try and fix it.”

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” said Warren Buffett.

The bad guys? Tapeworms? How could this disruption affect medical device price strategies?

Like all threats, this trend is an opportunity also.

Prescription costs account for 12% of the spend in the US healthcare system and are breaking the hospital bank with costs per inpatient admission leaping nearly 40% between 2013 and 2015. Spend on medtech is estimated at almost 6%.

The watch out for medtech:

Spending on the six highest cost medical devices accounts for almost 25% of total medical device spend at some hospitals.

Which devices need an immediate assessment of their medtech price strategy and value proposition? The devices named in the research were implantable defibrillators, cardiac stents, spinal fusion devices, knee and hip implants and allograft materials.

What other devices are in the next segment of high priced medtech?

Other hospitals are expected to join the consortium said Dr. Harrison. Prescription costs are breaking the hospital bank with costs per inpatient admission leaping nearly 40% between 2013 and 2015. The four IDNs said they planned to focus on certain drugs.

“There are individual places where there are problems,” he said. “We are not indicting an entire industry.”Dr. Kevin A. Schulman, a professor of medicine at the Duke University School of Medicine who is advising the program, said: “If all hospitals agree to buy enough to sustain this effort, you will have a huge threat to people that are trying to manipulate the generic drug market. They will want to think twice.”

The Medi-Vantage recommendation: Find out where your medical device’s price sits in the line-up of the most costly devices to the US healthcare system. Mitigate risk by pressure-testing the true value of your medical device’s pricing strategy to be sure that you can prove the value when medtech is called on the carpet by US hospitals CEOs and new employer-owned.

How can we help you?

Let us know using the contact form below. Out most recent three client engagements were for:

Pricing Strategy (non-conjoint, but we do conjoint also)

Due Diligence for an M&A

Commercialization strategy for a European client entering the US in 2018